According to the European Environment Agency, annual flood losses in BiH are expected to increase five-fold by 2050 and up to 17-fold by 2080.
The UNDP BiH NAP project understands that more attention should be paid to educating locals – especially young people – to this reality. It also recognises that we need more action in the field of flood risk insurance and other natural disaster risk mitigation mechanisms.
‘Establishing a flood and other natural disaster insurance system for legal entities, farms, public, and residential buildings can contribute to reducing the risk of floods and other natural disasters. Through project activities, we encourage discussion between key stakeholders in this area to define the risk management assurance model applicable in BiH’, said Raduška Cupać, UNDP Project Manager.
One risk management assurance model is ‘public-private’, wherein a flood insurance group is formed. Members of that group would include insurance companies that have the financial wherewithal to accept flood risks.
Insurance expert Prof Dr Jelena Kočović emphasised that ‘without the introduction of mandatory insurance against catastrophic risks, we cannot cope with adverse consequences. The enormous financial losses from the floods that BiH experienced in 2014 remind us that nothing should be left to chance’.
The 2014 floods in BiH are estimated to have caused damage equivalent to 15% of GDP. The ex-ante flood insurance is a vital financial mechanism that can have significant impact as a climate adaptation tool (e.g. when flood-damaged buildings are rebuilt, the flood insurance group can stipulate the use of climate-resilient materials and processes).
Due to the lack of a comprehensive mechanism for insurance against natural disasters, only 14.9 per cent of the total estimated losses from the 2014 floods were covered. Of these losses, less than one per cent was covered by budgetary reserves, and less than two per cent by insurance; the vast majority of losses were never recovered. In 2014, only six citizens in BiH were covered by flood insurance.
Working with the Federation of Insurance Companies in the Federation of Bosnia and Herzegovina, the project is contributing to discussions regarding catastrophic insurance, and is supporting initiatives to make risk-pooling compulsory to protect property in the face of increasing natural disasters.
The former Minister of Finance and Treasury of BiH, Vjekoslav Bevanda, notes that ‘by providing economic protection against risks and dangers and mobilising savings, they significantly contribute to financial stability and the development of the economic system. Today, at a time when we are witnessing numerous natural disasters, such as the catastrophic floods of 2014, with industrial accidents and increased business risks, the role of insurers is growing daily’.
Within the NAP project, an innovative, sustainable and bottom-up mechanism tailored for adaptation investment is under development in four selected municipalities, and includes a set of guidance and tools to potentially scale-up these activities through future adaptation investments outside of the pilot municipalities.
Through NAP and other UNDP initiatives in BiH, support and a better understanding of the importance of insurance in the adaptation context is ensured, enabling better coping with future climate change challenges.
For example, the NAP BiH team introduced a new risk mitigation product to insure property against damage from natural disasters correlated with climate change, including floods, landslides, earthquakes, and extreme weather events. The product includes the introduction of a form of compulsory insurance for individual residential buildings against these four common types of disasters.
‘If insurance against the most common natural disasters would be mandatory for all housing facilities, such as the legal obligation of liability insurance for all vehicles, it would allow the price of housing insurance against natural disasters to be acceptable to all’, said Prof Dr Safet Kozarevic, from the Faculty of Economics at the University of Tuzla.
This insurance product was developed as part of UNDP’s climate change adaptation portfolio, in collaboration with the Association of Insurance Companies in the FBiH. Representatives from UNDP, the FBiH Insurance Industry, the Federation of Insurance Companies of the FBiH, and local experts took part in product development. This type of compulsory natural disaster insurance is in line with EU requirements, and is already being implemented in a large number of both developed and developing countries.